Paying interest reduces the taxes owed by a firm.Which one of the following terms applies to this relationship?
A)financial risk
B)M&M Proposition I
C)interest tax shield
D)static theory of interest rates
E)homemade leverage

Question

Quizplus · Accepted Answer

The relationship described is known as the interest tax shield, which is the reduction in taxes owed by a firm due to the deduction of interest expenses from taxable income. This tax shield is a key concept in corporate finance and can have a significant impact on a firm's overall cost of capital.

Paying Interest Reduces the Taxes Owed by a Firm